Amazon just announced a sizable price cut for the Kindle, slashing it from $259 to $189. The 3G Whispernet-equipped ebook reader now undercuts Barnes & Noble's 3G-equipped Nook by $10, and is only $40 more than the Wi-Fi-only version of the Nook. New technology gets steadily cheaper as it matures, but in the case of eBook readers, Blu-ray Disc players, and video-on-demand products, you still end up paying a premium for both the hardware and the media.
In early 2008, Wired's Chris Anderson speculated that free technology was the future of business. He described Gillette's turn-of-the-last-century tactic of giving away its razors for free, but making money on the blades which had to be regularly replaced. This tactic bled over into some personal electronics sectors, like the current trend of giving away cell phones in exchange for agreeing to a two-year contract. Trends like Google's success with ad-based services and the growing popularity of giving away certain technological services like photo hosting, email, and office software, also served his point. A year later he released a book on the topic. It's available on Amazon for $10 if you have a Kindle.
Kneale points out that Amazon is primarily a bookseller, and that it would benefit from more people owning a platform upon which they could purchase directly through Amazon electronic books. He notes that Amazon's shipping costs shot up 35% last year, and that the company pays $850 million annually in postage and handling alone. When Amazon sells an e-book over Kindle, it only has to pay bandwidth; it doesn't have to worry about shipping, warehousing, or any other physical logistics.
Of course, Kneale argues that the Kindle is dead and the iPad has taken its place, and the iPad is certainly not free. Apple has historically been able to charge a premium for its hardware, and the iPad is no exception, with over three million of the $500-plus devices sold since its April launch. Of course, Apple is specifically an electronics company. Amazon isn't.
As long as hardware costs money to manufacture and ship, companies will have to charge consumers for it. Thanks to digital distribution, content can be readily given away for free and offset in a variety of ways. Hardware isn't so lucky. In the case of the Kindle and its ability to read copyright-free content from sources from Project Gutenberg, it would be like giving away the cow and hoping the consumer would come back to buy the milk.